Drawdown
The decline in a portfolio's value from a previous peak to a subsequent trough, expressed as a percentage.
Formula
Drawdown = (Peak Value - Current Value) / Peak Value x 100
Unit
%
In depth
Drawdown measures what an investor actually experiences, which is why it predicts behaviour better than volatility does — nobody abandons a strategy because of its standard deviation, but many abandon one during a deep decline. Recovery is asymmetric and the asymmetry worsens sharply with depth: a 20% fall needs 25% to recover, a 50% fall needs 100%. Duration matters as much as depth, since a shallow drawdown lasting four years tests patience differently from a deep one lasting four months. Any performance record quoted without its drawdown is describing only half the outcome.
Worked example
A portfolio falls from ₹10,00,000 to ₹6,00,000, a 40% drawdown. Recovering to the peak requires 10,00,000 / 6,00,000 - 1 = 66.7% — two-thirds again on the reduced capital.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Drawdown” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.